Income to personal use
Similarly, if you use a property for income-earning purposes and subsequently use the property for personal purposes, you will have a deemed disposition and new cost of the property at fair market value.
One of the rationales for this rule is to ensure that you are taxed on any “excessive” CCA on the change in use. That is, if the value of the property at that time is greater than its “undepreciated capital cost” (cost minus the CCA you have claimed), you will have an income inclusion, as the excess will be “recaptured” back into your income. If the rule did not exist, you could easily avoid (or at least defer) the recapture by changing the use to personal.
Partial change in use
The above rules also apply to a partial change in use, with modifications to take into account the partial change on a proportionate basis.
For example, say you were using a property entirely in your business (100% income use) and later began to use it personally 40% of the time. You would have a deemed disposition of a part of the property for proceeds equal to 40% of the fair market value of the entire property, and that amount would form the cost of that part of the property.
Election out of the change in use
You can elect out of the change in use from personal to income-earning purposes (the first rule above) in certain cases. For example, if you move out of your personal home and start to rent it out, you can make this election.
Conversely, if you rent out a home and subsequently move in and make it your principal residence, you can elect out of the second rule above.
Under both elections, you will not have a deemed disposition. Furthermore, you can normally designate the home as your principal residence for up to four years while you rent it out.